 Hello, in this presentation, we will discuss the discussion question of, is cash the same thing as revenue? If you see this as an essay question and we're looking for a definition or a comparison of two terms, then a good place to start is to try to give the definition of the two terms and then discuss how they differ. In practice, this is often a question that will come up because of the relationship between cash and revenue because of the goals that people usually think about when we are in business, meaning if we were to ask a normal person what their goal is to work or to be in business, they will often say that their goal is to receive cash. And that's going to be a goal that is there that we want to have. But note that from a standpoint in terms of the business, we're typically going to distinguish that. We're typically not going to say that the goal is going to be cash but revenue generation and then try to start from there and say, why would that be the case? If I went to work, I want to get paid, what do I get paid with? Typically money with cash. And so how is that going to be different than revenue? And the problem here is of course that we get paid typically in cash so often that we equate cash and revenue as exactly the same thing. Of course at some point in time, in some point in time in our history, we had no cash. We can think about it or start from there. We can say at one point in history there was no such thing as dollar currency. And therefore, we still had work that would be done. We still earned something. We still earned revenue. So one way to start to approach this kind of question of what's the difference between cash and revenue? What's the main goal of the business? Is it cash or revenue or can it be both? Just to think about what if we didn't have cash as would be the case before the invention of cash? Would we still have work? Would we still want to earn revenue? And the question, the answer there typically would be yes. We'd still want to do work and get paid in some way. That would be the way that we would maintain our lifestyle and whatnot. In the same fashion, it's just that payment would be a little more difficult. So then what is going to be the definition of these two? We can start by saying, well, what type of accounts are they? We know that cash is going to be an asset account. So it's on the balance sheet. It's an asset account. It's as of a point in time, whereas revenue is an income statement account. Therefore it has a time frame. If we look at the income statement versus the balance sheet, the balance sheet's got that point in time. So everything's recorded as of one date. We don't need two dates. And the revenue account, on the other hand, is on that income statement account. We're on that income statement statement where we have at least two dates. We have a beginning date and an ending date. So that's one area where we can say, well, why are these on these two separate accounts? What's the difference between an asset and a revenue account? An asset account such as cash represents what we have at a given point in time. So if we were to ask somebody what do they have at a given point in time, they can say, this is how much we have in the bank. They don't need any other information other than that in order to answer that question. On the revenue side, however, if we were to ask someone how much they earn, they would probably make an assumption. They probably wouldn't ask the question outright, but they'd probably make an assumption and that would be, what does he mean? What does he want to know? Does he want to know how much I earn a week? Or how much I want to earn a year? Or how much I earn a paycheck? And so we'd need to answer that basically timing question, meaning over what time frame are you talking about when we're talking about earnings? So we can see there that when we're comparing cash and revenue, really cash is going to be something that we have at a point in time. Revenue is really that goal of measuring performance. So when we're thinking about how we're doing over time, the goal of generating revenue, just like if we were trying to drive a car and see how many miles we can go within a certain time period like a day, then we would be tracking how many miles that we are driving. That's kind of like the revenue here. We're tracking how far we're going over a certain amount of time, meaning how much revenue we are generating over a certain amount of time. The cash, when we think about cash, we're really thinking about how much cash we have as of a given point in time. Now you might be asking, well, when I'm thinking about how much revenue I get over a certain point in time, I'm thinking about how much cash I'm earning over a certain period of time, how much cash I'm accumulated in order during a certain point in time. And there could be a difference there as well too, because normally we are going to accumulate the cash. But at the same time, when we're thinking about revenue, it is possible that we get paid in something other than cash. So obviously, it may not be as common. We may have a policy in place that we don't get paid in anything other than cash. We only do work for cash. But we can think of a situation, of course, that we would do work and then we would get paid in something other than cash. If we work at a W-2 employee, we often get a 401k plan. We often get pension plans. We often get sick pay. All these kinds of things that are benefits that are something other than cash are really a form of revenue. We're still counting those. Those should be counted as something that we are earning. In terms of a business, of course, we could barter or something like that. We could get paid with something other than cash within payment for services provided. So cash is going to be the main form of payment. But we can imagine situations where we're going to get paid something other than cash. So when we're counting how much revenue we're making, note that we're typically going to be talking about dollars when we're counting. That's the measuring tool that we have in terms of dollars, just like miles would be the measuring tool when we're trying to decide how many miles we drive. But dollars in terms of a measuring tool isn't the same thing as actually receiving cash. Dollars is a unit of measure. So even if we bartered for something and we did work and we've got something in return, if we did work for a restaurant and we've got free meals or something like that, we would still need to recognize the revenue, not in terms of free meals. We would say we've got $100 worth of free meals. So that's another kind of thing that is confusing between these two terms, between reconciling cash and revenue. As we record revenue, like expenses, like anything on the financial statements, we need to use the tool of dollars to measure, meaning we're going to measure any other thing in the units of dollars like services being measured in the units of dollars. I've got $100 worth of meals in this case. I've got $100,000 worth of property for this work that we did. We've got a $50,000 car as barter for a treatment trade that was made in this transaction. It doesn't mean we got the cash in that case, but we're measuring whatever we did receive within with cash. So those are some reasons why we get these two things. We try to put these two things in the same category. Cash as an asset on the balance sheet and revenue as an income statement account. So cash as an asset on the balance sheet is something that we have at this point in time. Why do we have it? Because we hope that it will help us to generate revenue in the future. And if it doesn't help us to generate future revenue, then any asset, there's no real point to having it within the business, including cash. And again, that could seem counterintuitive to some people because if we think that our goal is to just compile cash just to get a bunch of lump of cash in the business and just hold on to it and just keep on growing that cash pile, that's not an accurate picture. We're trying to keep on getting revenue, which could increase the amount of cash that will compile up. But the cash just piling up is not what we want. We want a consistent revenue. When the cash piles up, when we get a lot, when we get this big amount of cash, the question then is what are we going to do with it? Are we going to put it back in the business? Is it going to help us generate revenue in the future? We need that cash in order to help generate revenue in the future. If it's not helping to generate revenue in the future, and we can imagine a situation where that be the case. If our business is running really well, we don't see any real opportunity out there to expand in one way or the other. We just want to keep going what we're going and we're generating good revenue. And we've got all this cash that has been generated from that business, then what we want to do then is not just hold on to it within the business, it's not making us any money. We don't know how to reinvest it. We want to then give it to the owners. We would take that cash and give it to the owners. So even cash, as in all other assets, like a forklift or something like that, forklift is very clear. If we have a forklift as an asset and it's not helping us generate money, meaning I don't know what to do with that forklift is not helping me to make money, then I'm going to sell the forklift probably because I have no use for it. Cash is a little bit more confusing because it could be thought that we have this goal of just compiling cash within the business. Not necessarily the case. If the cash isn't there to help us achieve the ultimate goal of generating revenue, we should take it out of the business and give the cash to the owners so that the owners can achieve their goals. If it's a sole proprietor, we just take it out of the business. If it's a corporation who has a lot of cash and does not have any plan of making revenue in the future with that cash, theoretically they should give that cash in the form of dividends to the shareholders. The revenue on the other hand is going to be that measure of performance. So ultimately revenue generation is the goal of the business. So when we're thinking about how the business is performing over time, we're not really looking at cash generation, although we want to have a positive cash flow. We don't want to have problems paying the bills or anything like that. That would be a problem. But we're really looking at revenue generation. Are is the company generating more revenue? Does it have a plan for revenue generation in the future? And that's going to be the measure, just like a stopwatch being the measure when we measure how someone is doing in a race or the amount of miles that someone drives over a certain time period. That's going to be the measurement tool that we're going to use. Cash is going to be the balance sheet tool, just basically another asset as of a point in time. Revenue is going to be that measurement tool that we have over time. Now remember that that measurement tool that we have over time is typically on an accrual basis, not always on a cash basis. And the reason for that is that we don't distort. We don't want to distort the revenue, meaning we want to recognize the revenue when it has been earned, not necessarily when we get the cash because we could get cash at a different time period than it was earned. For example, you can imagine situations where a company wants to look better and they try to cheat the system kind of. If we wanted to look better at the end of December and we were on a cash basis, we could imagine going to a client and saying, hey, we'll give you a year's worth of service, a 10% discount on a whole year's worth of next year's service. If you pay us today, we'll give you a 10% discount, therefore we would on a cash basis record the revenue today. Even though we have an entire year's worth of service, we need to do in the next time period under an accrual principle. That wouldn't make sense because we would be recognizing revenue. Although we got the revenue today, although we got the cash today, we haven't really earned it. We haven't earned the revenue. We're going to be working for that revenue we got today for an entire year. So that's why when we when we think about from an investing standpoint or from a creditor standpoint, the revenue generation, it's not enough that we got cash this time period because we have this huge obligation in the next time period. What we want to measure in terms of revenue under an accrual principle according to the revenue recognition principle is how much work was done in order to generate actual revenue. If we got the cash and we haven't done the work, not revenue. If we did the work and have not gotten the cash, it typically will be revenue. We do want to consider however how good the clients are and whether we're going to get the cash in the future. But it is typically revenue when we do the work. And if we have already completed the work and we just expect to be paid soon and we can be assured of that payment, then we want to record the revenue at that point in time. So in conclusion, the difference between the cash method, if you have an essay question asking how is cash and revenue different, then we could start with the definition. Cash as an asset, revenue is going to be an income statement account. Assets are reported as of a specific point in time where we stand at a point in time only needing one date. Revenue accounts on the other hand need a beginning and an end. They are performance accounts. They are timing accounts. They only make sense if I have a starting point and an ending point. The cash is showing us what we have at one point. The revenue is showing us how much we earn over time. Revenue being recorded on the revenue recognition principle. Recording revenue as the point in time that we have earned it. Cash just being cash, cash is cash. Whatever cash we have on us at that point in time, it is what it is. Revenue measuring the performance of a company over time.